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Orogen Makes High-Potential Acquisition
Contributed Opinion

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Adrian Day Global Analyst Adrian Day discusses a potential company-maker deal by one of his favorite companies. Although the stock moved up a little on the news, it remains below where it traded a month ago and well within its 2023 range, Day notes.

Orogen Royalties Inc. (OGN:TSX.V) has acquired a royalty that is another potential company maker, though it comes with jurisdictional risk. Orogen has purchased for US$1.75 million a 1% royalty from a third-party on the privately owned La Rica copper-gold property in northern Colombia. La Rica is a 160 sq-km land package in the northern segment of the Andean copper belt that extends from Chile to Panama and hosts some of the most prolific copper mines in the world.

The royalty covers a 15-km-long trend of anomalous geochemistry with four undrilled porphyry targets, which contain mineralization related to a type of porphyry. The acquisition continues Orogen's strategy of using its technical expertise to identify low-cost royalties on land with significant exploration potential. This is the most expensive in a string of such acquisitions, but with CA$15.7 million in working capital, it is readily manageable, while the potential rewards are very significant indeed.

No Drilling Yet in Prospective Area

The larger area (Mande Batholith) of which La Rica is a part has been identified as prospective for porphyry copper by the Colombia Geological Survey and the United Nations as far back as 1970. For the geologists among you, there is a lot of information on the internet, historic and recent, about the area and its prospectivity.

There has been no drilling on La Rica, though soil and sediment samples have shown copper anomalies. The royalty purchase agreement has a contingency US$5 million payment by Orogen, which could be triggered by one of two events, but in both cases the triggering events would involve Orogen receiving more cash than the contingent payment.

For example, half of the royalty can be purchased by the property owner for US$15 million. Also, Rio Tinto has a back-in right on the property, which, if exercised, would trigger a US$6 million payment to Orogen.

It's Not a Certainty

The risks are, first, jurisdictional. The situation has improved a lot since the narcoguerrilla group FARC came to an agreement with the government, but miners still complain of slow permitting and intermittent issues in the field. Nonetheless, one mining executive with experience in both countries rates Colombia today as more mining friendly than Mexico.

A second risk is that the group that owns the entire Mande Batholith trend focuses on other targets and leaves exploration of La Rica until much later. This seems unlikely since the group is doing preparatory work now. A third risk is that as a private company, they are not required to release information beyond was is required by the Colombian government.

And lastly, it is possible, given that La Rica is on the western margin on the Mande Batholith that no major deposits are found in the section. Although the information on the geology is bountiful, available information on the private owner is scarce and, I was advised, is out-of-date, while Orogen is being mum. So we do not know much about this company and its backers, though presumably, Orogen would not have transacted had they not had some comfort.

An extensive drill program, however, would require many millions of dollars and could lead to a public offering.

Orogen Has All the Ingredients for Success

On balance, I view this as a potentially huge winner for a small amount of money that Orogen can afford. As per our last write-up, Orogen has a clear strategy, is well-executed, has a strong and growing balance sheet, and is that rare junior with free cash flow.

It has a royalty on AngloGold Ashanti Ltd.'s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) Silicon property in southern Nevada, arguably worth the company's entire market cap, and now this, another company maker.

At 0.53, Orogen is a very Strong Buy.

TOP BUYS this week, in addition to the above, include Gladstone Investment Corp. (GAIN: NASDAQ), Hutchison Port Holdings Trust (HPHT:Singapore), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE),and Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ).

As per the last Bulletin, if you are underweight in gold or specific stocks, some seniors can also be purchased now including Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). There is a risk of further downside in the gold price if the Federal Reserve decides to raise rates again at its June 13 to 14 meeting on the back of higher inflation numbers. Such a raise, though with increasing odds in recent days, is not fully priced in yet. 

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Important Disclosures:

  1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Orogen Royalties Inc., Barrick Gold Corp., Fortuna Silver Mines Inc., and Pan American Silver Corp.
  2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
  3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
  4.  This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.

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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

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